In recent years electronic transaction systems that are the functional equivalent of some or all of the roles of the traditional marketplace have become commercially important. Building upon and expanding the automation of the voice-only telephone network, such systems are called marketplace systems. Marketplace systems, to varying degrees and in different ways, automate markets. Examples are to be found in the thousands of e-commerce web sites of the Internet, in many commodity and stock exchanges around the world, in the block trading of stocks by financial institutions, in financial markets of all kinds (the largest of which is the global foreign exchange market), in wholesale produce markets, in cattle markets, in lumber markets (mills and wholesalers), in jewelry trading, markets for event tickets, airline reservations, book buying and numerous others. Other examples include systems sponsored by organizations or corporations that electronically link many of their own business activities to their suppliers, to their customers, or to both, and may be shared among several organizations in an industry.
In the generic description covering such diverse markets, it is useful to use the term item to cover anything that is sought and/or provided in a market, including products, services, and information. Some markets cover only a single item but a more typical market carries hundreds, thousands, even potentially an unlimited number of different items. Furthermore although purchase and sale is the main function of many markets, many others are limited simply to supplying information on availability of items, or to facilitate some part of the purchase and sale process. Although all of these markets may have some degree of automation, many are not fully automated, particularly the actual execution of a transaction often requires some human interaction beyond pressing a button that consummates the transaction, such as a voice conversation. Furthermore, it is not just purchase and sale that may be the functional activity or activities of the system, but other functions such as renting and leasing, shipping and insuring, delivering and receiving, tracking and reporting, borrowing and lending; losing, finding and returning, and similar transactions may be functions of a market. We also use the term user of a marketplace system to cover any person or organization that participates in any of these activities. Two (occasionally more) users are involved as parties to each transaction. Each is a counterparty to the other(s). In some markets users are restricted to members, to professionals in the activity of the market, or to other categories. In some cases almost anyone may be a user. In traditional markets users were local. In today's marketplace systems, users can be anyplace in the world.
Markets and marketplace systems alike are owned and controlled by one or more individuals, sponsors, organizations, agencies, governments, or associations, called here the sponsors. Sponsors, acting themselves or through agents, assignees, or employees, here called managers, have responsibility for managing, upgrading, revising and operating the market. Various agreements between sponsors and between sponsors and managers in a marketplace system assign responsibility for operating and management functions, as well as provide for payments for services, for maintaining, upgrading, or modifying the system and operating it on an ongoing basis.
This invention pertains to marketplaces which have rapid transaction rates in individual items, particularly financial markets, but also in some commercial and industrial markets. These markets often have traders or brokers handling transaction negotiations for their organizations or their clients. Financial markets also usually have dealers and market makers. With the advent of e-commerce many markets are beginning to be totally automated. Customers and principals initiate and execute transactions through the Internet or intranets with no human intermediaries. This development is putting pressure on the financial markets where dealers and market makers have played a central role. Even if the roles of dealers and market makers become marginal, the dominant principals in many financial markets with a need to transact at rapid rates require in-house traders to handle their transaction volumes. They may also use brokers, whose services less active participants in these markets require. To cover all of these cases, marketplaces which have rapid transaction rates in individual items can be distinguished by the presence and role of traders.
Market makers are dealers who usually are prepared to both buy and sell each item they make a market in, in a range of sizes, and throughout the trading day. When a customer asks for a quote on an item (without revealing its own interests in the item) a good market maker in many markets gives a complete quote in size, including up to four numbers: a bid price (and the size it is good for) and an ask price (and the size it is good for). The size is often implicit and the same for both sides. The difference between the bid and the ask, the spread, represents the gross profit per unit item that the dealer receives on a purchase and a sale, assuming the quotes for both were the same. Other things being equal, the dealer willing to furnish a valid quote with a smaller spread and over a greater range of volumes, more reliably (with fewer exceptions because of difficult market conditions or for whatever reason) is a dealer who is providing a better, more efficient, and lower cost service than some other dealer whose quote has one or more of three features(a) a larger spread, (b) for a smaller range of sizes, and (c) is available over a smaller portion of the trading day. The first dealer not only offers a better service than the second dealer but also helps the sponsors produce a more efficient marketplace system. The payment methods of the invention should and can be made to favor more efficient dealers. Not all persons or organizations seeking to buy or sell an item in a marketplace use a dealer. Many dealers' customers are large financial institutions or financial branches of conglomerates which themselves also act as dealers and market makers with their own sets of customers.
It is desired to provide a system in which fees are assessed in a way which promotes stability and minimizes interference in the system. It is also desired to provide a system in which the imposition of fees is performed in a way which is as “painless” as possible. It is further desired to provide a system which evaluates the performance of market makers in an objective way. Finally, it is desired to provide a way to slow down and avert a “run” on a currency.
Older trading systems are described, for example, in the following US patents: U.S. Pat. No. 6,035,289 Method and apparatus for electronic trading of carrier cargo capacity; U.S. Pat. No. 6,016,483 Method and apparatus for automated opening of options exchange; U.S. Pat. No. 6,014,643 Interactive securities trading system; U.S. Pat. No. 6,014,627 Credit management for electronic brokerage system; U.S. Pat. No. 6,012,046 Crossing network utilizing satisfaction density profile with price discovery features; U.S. Pat. No. 5,995,947 Interactive mortgage and loan information and real-time trading system; U.S. Pat. No. 5,950,176 Computer-implemented securities trading system with a virtual specialist function; U.S. Pat. No. 5,926,801 Electronic security/stock trading system with voice synthesis response for indication of transaction status; U.S. Pat. No. 5,924,083 Distributed matching system for displaying a book of credit filtered bids and offers; U.S. Pat. No. 5,915,209 Bond trading system; U.S. Pat. No. 5,873,071 Computer method and system for intermediated exchange of commodities; U.S. Pat. No. 5,845,266 Crossing network utilizing satisfaction density profile with price discovery features; U.S. Pat. No. 5,689,652 Crossing network utilizing optimal mutual satisfaction density profile; U.S. Pat. No. 5,630,127 Program storage device and computer program product for managing an event driven management information system with rule-based application structure stored in a relational database; U.S. Pat. No. 5,454,104 Financial data event flow analysis system with study conductor display; U.S. Pat. No. 5,375,055 Credit management for electronic brokerage system; U.S. Pat. No. 5,347,452 Method for providing a visual display of current trading volume and cumulative average trading volume for preselected time intervals; U.S. Pat. No. 5,305,200 Financial exchange system having automated recovery/rollback of unacknowledged orders; U.S. Pat. No. 5,297,032 Securities trading workstation; U.S. Pat. No. 5,285,383 Method for carrying out transactions of goods using electronic title; U.S. Pat. No. 5,195,031 Trading system for providing real time context sensitive trading messages based on conversation analysis; U.S. Pat. No. 5,185,696 Financial calculator capable of displaying graphic representation; U.S. Pat. No. 5,063,507 Goods database employing electronic title or documentary-type title; U.S. Pat. No. 4,903,201 Automated futures trading exchange; U.S. Pat. No. 4,674,044 Automated securities trading system; U.S. Pat. No. 4,292,508 Trading system; as well as U.S. Pat. Nos. 5,313,560, and 5,974,485.
Older trading systems are also described in the following PCT publications: WO 00/16224 Communication of credit filtered prices in an electronic brokerage system; WO 00/11588 Anti-manipulation method and system for a real-time computerized stock trading system; WO 00/11587 A real-time computerized stock trading system; WO 99/26173 A configurable electronic trading system and the method therefor; WO 99/19821 Systems, methods and computer program products for electronic trading of financial instruments; WO 99/10815 Exchange method and apparatus; WO 98/49639 Network computer trading system; WO 98/21667 System and method for trading having a principal market maker; WO 97/45802 Distributed matching system for displaying a book of credit filtered bids and offers; WO 97/30407 Universal contract exchange; WO 97/22072 Electronic trading system including an auto-arbitrage feature or name switching feature; WO 97/08640 Anonymous trading system within improved quote input capabilities; as well as WO 97/19427.
Principal references in this area are Henderson, H, Kay, A. F., Introducing Competition to Global Currency Markets, Futures 28(4):305-24 and Kay, A. F., Henderson, H, Futures 31 (1999) 759-777. Other references are Australian Financial Review, Henderson's the Breaking Point, p. 1-9, Dec. 4, 1998; BBC Online Network, London, UK Oct. 30, 1998; US Treasury Press release, Declaration of G-7 Finance Ministers and Central Bank Governors, Oct. 30, 1998; Greenspan, A., The Structure of the International Financial System. Annual meeting of the Securities Industry, Boca Raton, Fla., Nov. 5, 1998; The Economist, Jan. 23, 1999, p. 69, Argentina; Building, a Win Win World, Berrett Koehler, San Francisco (1996, 1997); The Economist, When countries go bust, Oct. 3; 1998, p. 88; Business Week, Jan. 25, 1999, p. 126; Henderson, H, Building a Win Win World, Ch. 9. Information; The World's new Currency Isn't Scarce, Berrett Koehler, San Francisco (1996, 1997); UI Haq M, Kaul I. Grunberg I, editors, The Tobin Tax; Coping with Financial Volatility, London; Oxford University Press, 1996; Soete L, Weel B. Cybertax, Futures 1999:309; 853-71; The Economist, Global Capitalism; Making it Work; Invited essay by Jeffrey Sachs, Sep. 12, 1998 23-5; Business Week, Feb. 8, 1999, pp. 64-77; The Economist, Global Finance section, Jan. 30, 1999; Challenge to the South, South Commission, Oxford University Press (1990); Soros, C, The crisis of global capitalism, New York, Public Affairs, 1998; The Economist, Oct. 10, 1998, p. 18; Eichengreen B, Toward a New International Financial Architecture, Institute for International Economics, Washington, D.C., 1999.